Analysis

Israel Has Changed Over the Past Two Years and the Public Now Demands Transparency

People have lost their tolerance for being abused. Now they want a say in economic issues.

At an academic conference in Jerusalem last month to mark Stanley Fischer’s departure as governor of the Bank of Israel, some speakers discussed the odd nature of the role of central bank governor.

In the West, the head of the central bank has huge power, but is not elected by the public, does not report to the public and is not judged by job performance.

In many countries, the rules under which the central bank governor operates have been deliberately fashioned that way - to insulate the governor from political influences. The idea is to create an independent economist’s position, someone who would act only based on professional considerations and not be subject to short-term pressure from politicians. The result is a post filled by someone who does not have to report to anyone and is not subordinate to the system of checks and balances accepted in any other national system of decision-making.

Bothered by this, Fischer insisted that under the amended Bank of Israel Law, the governor would not make interest rate decisions by himself. Rates would be set by a monetary committee, though the governor would get a double vote. Also, he saw no significance in the new law stating that the governor’s role included economic adviser to the government. So the governor makes recommendations; but they could always be ignored. That role would become meaningless over time, Fischer figured.

What he did not think about when the law was amended, was a mechanism for selecting the governor. That was probably a mistake.

The choice of bank governor remained the prime minister’s prerogative. By tradition, the prime minister is supposed to coordinate the nomination with the finance minister, but because there is no formal selection process, the prime minster can basically choose anyone he likes.

And that’s what happened with the current finance minister, Yair Lapid, who wanted Karnit Flug, Fischer’s deputy and the current acting bank governor. Prime Minister Benjamin Netanyahu still seems to have little regard for Lapid’s economic decisions, and it was Netanyahu who came up with Jacob Frenkel and Leo Leiderman as candidates.

Both choices were ill-fated. Frenkel withdrew his candidacy after questions were raised over an alleged shoplifting incident at the Hong Kong airport in which he was detained. He said it was a misunderstanding and that the authorities there had apologized. But ultimately Frenkel withdrew his candidacy. Leiderman was then nominated, only to quickly bow out last week.

The only formal scrutiny of Leiderman’s candidacy came in the form of an investigation that Netanyahu asked his economic adviser, Eugene Kandel, to carry out. Kandel asked Leiderman if there were problems in his past. Leiderman said there were not, and the choice of Leiderman was announced.

Less than 48 hours later, it turned out that Leiderman had more than one skeleton in his closet; some people were warning that he was not an appropriate choice. Leiderman withdrew his candidacy.

Netanyahu, Fischer, Frenkel, Leiderman and apparently many other senior officials had not realized that over the past two years something fundamental had changed. The Israeli public had developed a greater awareness of national economic issues.

First came the global economic crisis in 2008, and then the social protest in Israel during the summer of 2011 and the hundreds of smaller demonstrations that followed. The people were no longer willing to accept officials’ decisions unless they stemmed from a transparent, open process and public debate.

It turns out that in the Israel of 2013, the people simply are not willing to sit on the decision-making sidelines. They express themselves by every means possible: street protests, comments on social media, recourse to the courts, demands that media companies disclose everything they know, as well as complaints and letters regarding senior appointments.

That’s what happened regarding the decision over which percentage of Israel’s undersea natural gas reserves should be retained for domestic consumption. That’s also what happened in the debate over the state budget and the selection of the next Bank of Israel governor.

A provision can be added to the Bank of Israel Law requiring that a selection committee meet six months before the expiration of a sitting governor’s term. There can also be a requirement that the names of all candidates be disclosed three months before a decision, and that the candidates undergo thorough screenings - not after the fact. Finally, public hearings can be required for the finalist for the post.

David Bachar
Haim Tzach
Olivier Fitoussi
Ofer Vaknin